• Treasuries cannot gain sustainably on weak housing sales
• European bonds eagerly awaiting German IFO
• The FX tale of the flip-flopping housing market
• Remarkable resilience to disastrous new home sales

On Monday, EUR/USD turned back up, as the new home sales disappointed. EUR/USD rose form the 1.3260 zone to the 1.3330 area on the day.

Not surprisingly, the data keep flip-flopping: one day good news, the other bad news. The US economy has some issues and this is visible in the data. It is really the confirmation that all is not well. The housing sector remains the foremost area of distrust at this moment. The subprime lending woes have gone below the radar for now, but that doesn??™t mean there are quite some questions about the health of the US housing sector. The new home sales were poorer and this erased the cautious rekindled confidence reinstated by the existing home sales. Soothing words that the subprime woes were not spilling over to other markets by Fed??™s Moskow could not help much. Berbanke will speak on the outlook of the economy on Wednesday and this will undoubtedly receive much more attention.

Today??™s German IFO indicator is the touchstone to see whether the euro has enough resilience to go and fight for higher ground, with the recent resistance at the 1.34 zone as a logical target.

The euro zone fin min??™s meet also. Belgium??™s Reynders already stated that EUR/JPY was no problem and Luxemburg??™s Juncker said the markets had understood the G7 message from Essen well and he had nothing to add. Probably not much has to be expected from the Ministers at this stage, but the market will pay attention as this is the last meeting ahead of the April G7 meeting and the euro zone has to set a course to take at that event.

In the mean time, the ECB continues to speak hawkish (Bini Smaghi) and with reason apparently as the first German regional CPI (NRW) seems to point to the upside. More regional CPI??™s are released today.

To resume, the EUR/USD upside could still be favoured in a buy-euro-on-dip scenario. A move below 1.3260, the previous high, would deteriorate the euro ST picture??¦

USD/JPY is showing its colours. At a time when it should have headed down, it did so only briefly, showing that there is no appetite for yen right now. Indeed, the new home sales disappointed in the US, and this brought USD/JPY down to the 117.70 zone, but the yen gains evaporated later on and the pair recaptured the 118 mark quite easily.

The Asian Development bank called on Asian countries to diversify overnight. This had no clear reaction. Yesterday evening, Fed??™s Bernanke published a letter in which he saw no imminent risk to the USD value because of China??™s substantial reserve accumulation. Bernanke explained that as foreign holdings of US Treasuries represent only a small part of total US credit outstanding, the market should be able to absorb a shift without great difficulty. We would not be so confident and think his wording was cautious too, he did not say the market would be able to digest a shift with ease for instance. Also, a lot of debt held by Central Banks is in a growing degree not Treasuries, but other USD denominated paper (asset class diversification), so the impact on the dollar could also be felt in combination with broader sales. This issue is not a key driving factor for the market at this stage though.

The market is more focusing on the yen disappointment. A break above 118.51 would be the clearest signal yet that there are more yen losses to be expected in the short-term.

The EUR/GBP pair dipped below the neckline of a H&S formation yesterday, but no sustained break has been made so far. There were no big data to guide EUR/GBP yesterday. The euro was somewhat comforted by the French business confidence, but this may not be telling us so much about today??™s IFO. Some downward risk exists here after the Belgian/Dutch indicators last week.

Today, the market will also be scrutinizing the BoE speakers, testifying to the Treasury Committee.

The market has been too negative on the UK and the sterling and maybe too positive on the euro zone (IFO?). That is why we see a comeback story for the sterling (buyon- dips) in the making versus the single currency.